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Adjustments

• Adjustments are additional information to


Trial Balance.
• The main purpose of adj. entries is to
modify the specific a\c balance so that the
true situation of that a\c is reflected at the
end of the period.
• All adj. are given just after Trial Balance.
Important Adjustments
• 1.Closing Stock- Unsold or unused
stock for the current year.

• Debit- B\S ( Current Assets )


• Credit- Trading A\c( Cr. Side )
Adjustments
• 2.Depreciation- Use of fixed assets for the
current year.

• Debit- P & L A\c (Dr. side )


• Credit- Deduct from fixed assets in B\S
Adjustments
• 3.Outstanding Expenses- Services
recd, money is not paid.

• Debit- P&L A\c (Dr. side)


• Credit- B\S (Current Liabilities)
Adjustments
• 4.Prepaid Expense- Money paid,
services not yet recd.

• Debit- B\S ( Current Assets)


• Credit-Deduct from P&L A\c (Dr.
side)
Adjustments
• 5.Income recd. in advance- money recd.,
but services not yet given for the same.

• Debit-Deduct from P&LA\c- (Credit


side)
• Credit- B\S (Current Liabilities)
Adjustments
• 6.Income receivable/ Income Accrued-
services given but money not yet recd.

• Debit- B\S (Current Assets)


• Credit- P&L A\c (Credit side)
Adjustments
• Bad debts- When goods are sold on credit it
may sometimes happen that the customers
may not be able to fulfill their obligations.
• The amount which cannot be recovered is
considered as loss called bad debts.
• Debit- P&L A\c (Debit side)
• Credit- Deduct from Debtors (B/S)
Rectification of Errors
• 1. Errors of Omission: When any
transaction is remained to be recorded
in the books of accounts, The error of
omission takes place.
• For eg. Credit sale of Rs 1000 to Y not
recorded in the books.
Rectification of Errors
• 2.Errors of Principle- When a particular
transaction is recorded in the books without
considering the principles of book keeping,
this error takes place.
• For eg. Salary paid is debited to Rent
account instead of Salary account.
Rectification of Errors
• 3.Compensating Errors- When one error is
compensated by the other error. eg.
arithmetical errors.
• Salary paid Rs 500 is debited to Salary a/c
at Rs 1000; Cash a/c is debited by Rs 500
instead of Rs 1000.
Rectification of Errors
• 4.Errors of Commission- It includes wrong
amount recorded to both sides of a/c,
correct amount recorded to wrong side of
both the accounts and wrong calculations.

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